This week, the Eleventh Circuit Court of Appeals held that tribes cannot use tribal sovereign immunity to avoid a federal investigation into whether they complied with those tax obligations.

In 2005, the Commissioner of the Internal Revenue Service began to investigate the Miccosukee Tribe to determine whether the Tribe had complied with its reporting and withholding requirements. The Commissioner determined that, from 2000 to 2005, the Tribe had failed to withhold the required amounts, and had failed to file annual tax returns for that withholding. After finding that the Tribe had failed to comply with its tax obligations from 2000 to 2005, the Commissioner extended his investigation to the period from 2006 to 2009, The Miami Herald reports.

In 2010, the Commissioner issued summonses to American Express, Citibank, Morgan Stanley, and Wachovia Bank to produce documents associated with the bank and brokerage accounts maintained by the Tribe at those institutions because the Tribe had not complied with requests for the documents. The Tribe filed petitions to quash the summonses.

The Tribe argued that the summonses were unenforceable because the Tribe was protected from such summonses by tribal sovereign immunity and the summonses were overbroad. The district court denied those petitions.

On appeal, the Eleventh Circuit concluded that tribal sovereign immunity did not bar the third-party summonses, and that the Tribe lacked standing to challenge the summonses for overbreadth.

Why?

First, tribal sovereign immunity is subject to plenary federal control and definition. Here, the claim to tribal sovereign immunity failed for two reasons. First, the summonses were not suits against the Tribe. Second, tribal sovereign immunity cannot bar a suit by the United States.

Second, an overbreadth challenge is about the ability of the summonee to comply, not about the scope of the documents requested. A taxpayer lacks Article III standing to bring an overbreadth challenge to a third-party summons.

If you represent an Indian tribe, don't rely exclusively on tribal sovereign immunity to avoid a federal investigation. There are caveats in the law that may permit the government to gather the information they need against your client.

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U.S. Eleventh Circuit features news and information from the U.S. Court of Appeals for the Eleventh Circuit, which hears appeals from U.S. District Courts in Alabama, Florida and Georgia. This blog also features news that would be of interest to legal professionals practicing in the 11th Circuit. Have a comment or tip? Write to us.